It sounds like it's gotten so out of hand that it is really the Sensei's problem and responsibility. Although it sounds like you and the other students have much affection for your teacher, your respect for him is deteriorating, and his whole school is disintegrating because he does not have the courage, will, or fortitude to deal with this person.

I was faced with a similar situation at my old dojo a few years ago. Although he wasn't sending people to the hospital, there was a man who was scaring all the women at the dojo and getting into stressful conflicts with some of the men. Many students complained to the sensei, but the sensei merely offered general assurances that he was dealing with it - to no apparent effect.

I sensed the situation in general, and couldn't miss it when this guy explicitly threatened to punch me in the face for inadvertantly squeezing his fingers too hard in sankyo instead of asking me to lighten up. On a different occasion, during an unsupervised free-practice session, he didn't like the conversation I was making and made a big challenge scene of telling me to shut up in front of several other students, throwing a horrible pall over everyone's training. I regret to say that at the time that I quietly accepted both these incidents, as I didn't know what else to do - I thought that if I threatened him or got into a real fight with him that I would be ending my relationship with the dojo and possibly getting into legal trouble, and I was uncertain whether anything like that was worth it. During this same period, I saw the sensei privately encouraging this man to test and take more leadership in the dojo, so I was confounded.

I could not understand why the sensei did not have the awareness or the balls to deal with this man, and instead was rolling out the red carpet for him. I'm sorry to say that the situation went a long way towards spoiling my relationship with both the sensei and the dojo, and was a contributing factor to my 1-2 year hiatus from Aikido. Along with other issues I had about the dojo and my practice, it tipped the scales toward staying away and finding something else to do.

Looking back on it, I can see that I should have confronted both the offensive student and the sensei... especially the sensei, because he was the authority who was allowing this man to continue to inflict his demented behavior problems on me and the rest of the dojo. I suppose it is possible that the sensei saw some potential value in continuing to give the guy a chance that was of enough benefit to him and other people he effected to be worth the risk.

I wonder though whether sensei even understood the risk... with the kind of threat and challenge this guy was throwing around in a martial arts scenario, I could easily see an altercation erupting that would result in someone dead or permanently disabled. I imagine that would put an abrupt and permanent end to the dojo, and it could happen in seconds...

In the case of situation in question here, I think you should try to light a fire under your sensei's ass. Either he doesn't understand that this yayhoo is single-handedly destroying his dojo, or he doesn't have the courage to kick the guy out. Either way, he needs your help. If he ultimately won't accept it, grab a raft and a paddle...